Service Tax for Service provided before June 1, Invoice after 1st June

The Govt in Budget 2015 announced that the Rate of Service Tax is being increased from 12.36% to flat 14%. The date of applicability of this new service tax rate was not announced in the Budget 2015 but on 19th May 2015, the Finance Ministry released a notification stating that the new rate of service tax would be applicable from 1st June 2015.

What this new rate means for Service Providers?

Service Tax is to be paid by the person who is receiving services from a third party. Service Tax is not applicable if your employee is rendering services but is applicable only if you are getting some services from a third party.

Earlier the rate of service tax was 12.36% (incl. of SHEC and Education Cess). This rate has now been increased to a flat rate of 14%. This 14% is an inclusive rate i.e. Education Cess & SHEC would not be levied on this.

You now have to pay flat 14% Service Tax on the services you receive or charge flat 14% Service Tax in your Invoice for the services you provide to your clients. This 14% Service Tax is applicable on all types of services like Advertisement, Website Designing, Legal Services, Advisory Services etc. (It is applicable on all types of services except a few services that are specifically excluded.)

Levy of Service Tax on Invoices raised after 1st June for Services provided before 1st June

Rule 4a of Point of Taxation Rules would be applied in cases where the services are provided before 1st June. The following table clearly explains this rule in a simplistic manner:-

Case I: If Service is provided before 1st June, Invoice is raised before 1st June and the payment is made before 1st June – the applicable rate of Service Tax would be 12.36%

Case II: If Service is provided before 1st June, Invoice is after before 1st June but the payment is received before 1st June – the applicable rate of Service Tax would be 12.36%

Case III: If service is provided before 1st June, Invoice is raised before 1st June but the payment is received after 1st June – the applicable rate of Service Tax would be 12.36%.

Case IV: If service is provided before 1st June, Invoice is raised after 1st June and the payment is also received after 1st June – the applicable rate of Service Tax would be the rate applicable on the date of invoice or date of payment (whichever is earlier)

Levy of Service Tax on Invoices raised before 1st June for Services to be provided after 1st June

Rule 4b of Point of Taxation Rules would be applied in cases where the services are provided after 1st June. The following table clearly explains this rule in a simplistic manner:-

Case I: If Service is provided after 1st June, Invoice is raised before 1st June and the advance payment is also made before 1st June – the applicable rate of Service Tax would be 12.36%

Case II: If Service is provided after 1st June, Invoice is raised before 1st June but the payment is received after 1st June – the applicable rate of Service Tax would be 14%

Case III: If service is provided after 1st June, Invoice is raised after 1st June but the advance payment is received before 1st June – the applicable rate of Service Tax would be 14%.

Case IV: If the services are provided after 1st June and the invoice is also raised and payment made after 1st June, the rate of service tax applicable would be 14%